The Way It Was ...

The Way It Was ...
by Conrad Siegel

Time travel ... enjoy this glimpse of the past.

It is a longstanding practice in our consulting firm to have an exam passers' lunch twice a year. Those passing Society of Actuaries, examinations, firm partners and other actuaries attend. Recently I reminisced on how things were when I wrote the SOA exams in the 1950s. The young actuarial students were quite amazed, which leads me to expand the memories to a wider audience.

The year 1956 was notable for me. I received my master's in actuarial science from the University of Wisconsin at Madison. John Fibiger, another graduate student and I decided to jointly study for our final Associateship exam in March and both passed it in early May. My wife Gail and I were married in September and will celebrate our golden anniversary this year. I commenced full–time actuarial work at National Life of Canada in June in the group and pension department.

I had worked part–time and summers for National Life while completing a B.Com. at the University of Toronto. U of T claims to be the earliest North American university teaching actuarial science–Robert Henderson of Whitaker–Henderson graduation fame lectured in 1875, 25 years before the University of Michigan began teaching actuarial science.

We had a field trip to the Northwestern Mutual in Milwaukee. Northwestern's actuary was Elgin Fassell who was noted for the invention of the retirement income endowment policy–$1000 of life insurance and $10 per month of pension. Northwestern sold only standard life insurance, about four policy forms and two rate books–the first based on the American Experience table followed by 1941 CSO. No substandard, no group, no sickness and accident, no health. We were shown a huge room full of clerks sitting at identical desks with identical rate books, providing policyholder service.

The decade of the 1950s enjoyed a period free from tinkering with the SOA examinations–no partial credits to be lost, no shifting of subjects. Toronto was a great place to be–U of T actuarial professors taught life contingencies for six semesters, from sophomore through senior year. The Canadian Association of Actuaries (predecessor to the Canadian Institute) arranged study circles for employed exam takers and experts in the subject matter lectured to us.

Exams were given once a year, in May, and all eight exams totaled 37 hours. Language aptitude (English or French), three hours of math through calculus, three hours of statistics and finite differences, six hours of math of finance and life contingencies, six hours of a hodgepodge of graduation of tables, medical underwriting, exposed to risk formulas, characteristics of mortality tables, etc., completed the ASA exams. The next three six–hour exams covered everything for Canada and the United States, for pensions, group insurance, investments, accounting, law, ordinary and industrial life insurance, social insurance, etc. If you passed one subject on an exam, but failed another, you had to repeat the entire exam one year later.

On completing your fellowship you were considered capable of practice in the United States or Canada in any field including individual or group insurance, pensions, social insurance or government regulation. The late Frank Dana practiced in seven decades from the 20s through the 80s employed in a life company, consulting firms, a state insurance department, U.S. federal agencies covering a variety of insurance, pensions, accounting and pension guarantee fields.

Passing percentages were 20 percent on the earlier exams and 40 percent to 50 percent on the later ones.

Some students got hung up on the last exam and tried to pass it for years. Others couldn't pass the language exam. The study materials on math of finance, life contingencies and finite differences were largely based on British textbooks, so you had to answer the textbook problems in pounds, shilling and pence. The syllabus included many original papers and discussions from the professional journals. One got the flavor of heated arguments over exposed–to–risk formulas in papers by Wolfenden and Marshall or on social security financing by Williamson and Myers. Jordan's text on life contingencies was a welcome addition to North American literature.

There were outstanding students. One Toronto student passed two exams per year and was an FSA 12 months after receiving his B.A. Another, the late Barry Watson, first actuary to be executive director of the SOA, received a 10 on all eight exams. Not surprising since he was the top student in the Province of Ontario in high school grade 13, and placed first in math and physics all four years at the University of Toronto. The SOA and CAS gave cash prizes to the highest scoring student–passers on the general math exam. The CAA also gave prizes to Canadian students on two exams. Since it only cost $6 to write an exam, many pure math students won $100 or $200 prizes for three hours' work and had no further interest in actuarial careers. Eventually high school whizzes began winning the prizes so they were discontinued. Our firm has given cash prizes to Lebanon Valley College undergraduates for the best grade on SOA exams since the 1960s.

Most actuaries didn't attend actuarial colleges since there were very few at the time. Canada had Toronto, Laval and Manitoba. The United States had Michigan, Iowa, Drake, Penn, Penn State, Occidental, Northeastern, Texas and Wisconsin amongst others. Actuarial professors mostly had actuarial society fellowships and masters degrees. Only one or two actuary–professors were on a college's staff, although the math and statistics courses were available in the mathematics departments.

Many bright high school students couldn't afford college and went to work in life offices and gravitated to actuarial departments and began to pass exams. You could not be a Fellow before age 25. Oswald Jacoby, the famous bridge player, dropped out of college and whizzed through the exams at MetLife, only to wait for his 25th. The profession retained the self–study mode long after the legal profession gave up articling with a lawyer for university training. Most consulting actuaries started their careers in life offices. It was easier to pass the exams there rather than under the pressures of employers and clients who demanded long work hours.

The SOA had its office at 208 South LaSalle Street in Chicago. Chicago was originally chosen by the SOA's predecessor, the American Institute of Actuaries, because of its centrality for train travel. The staff consisted of Art McKinney and a small clerical staff. Exam results were mailed from Chicago and took several days to reach distant post offices. Those who were anxious to find out whether they passed phoned friends in Chicago once they heard that the results were out. SOA meetings were an opportunity to see the giants of the profession in action. There was a fall meeting and two spring meetings. Papers were submitted and sent to members in advance, typeset on four–foot long galley proofs. Most members could understand the papers and discussions were lively. Often all the Met actuaries would take a different position than all the Pru actuaries on subjects such as variable annuities. It was rare that junior actuaries at the big insurers would dare to speak. I looked forward to seeing the discussions of papers and the authors' responses when the "green" transactions arrived several months later.

There were only two "headhunter" firms that advertised actuarial jobs in the insurance publications. Reinsurance companies informally put actuaries looking for jobs together with their clients looking for actuaries.

There were only two actuarial examining bodies in 1950 (SOA and CAS) and the need for additional degrees and memberships hadn't manifested itself at that time. No EA, ASPPA, CCA, COPA or AAA.

Ralph Edwards, FSA, of Baltimore put out a newsletter for SOA members that attracted readership and interesting discussions. He discontinued it when the SOA brought out its own newsletter.

Government regulation of credentials was stronger in Canada than the United States. A Canadian life company statement had to be signed by an actuary who was a fellow of the SOA or the British or Scottish bodies. A pension plan valuation had to be signed by a Fellow, if the plan was uninsured or an Associate if insured. In the United States, actuaries signing insurance statements did not have to possess similar credentials. The employer maintaining a pension plan was required to attest to the actuarial calculations. A common funding vehicle for small plans was whole life insurance plus a "side fund." The agent who sold the plan calculated the side fund contribution and liability using tables prepared by his home office actuary.

Computation was very primitive. There were vast actuarial departments with identical electro–mechanical calculators on each desk. Some employers preferred Marchant, others Friden, and some Monroe. A breakthrough occurred when, after multiplying A X B = C, you could transfer C back into the keyboard without re–entering it. I paid $1300 in 1963 dollars for such a marvel. The first IBM punch card machines began to appear–keypunches, sorters and primitive programmable machines. IBM had 80 column cards and Remington–Rand had 90.

When I dictated a letter, I used an Edison machine that employed a wax cylinder. After the dictation was transcribed, the wax was shaved down to receive the next dictation.

Insurance policy applications were photocopied using a camera–like device and the result was "developed" and printed. A copier could produce a thermo–fax copy that couldn't be left near a radiator or in the sun. IBM introduced electric typewriters with a "floating" type ball.

Insurance premium ratemaking was interesting. One company had a "bible" of historical data and formulas used in determining rates. An earlier chief actuary described his non–participating whole life rates as follows:

The lowest rate at each 5th age of the three major competitors was reduced by one cent per thousand. The resulting quinquennial rates were interpolated by Beer's minimized 5th difference osculatory interpolation formula to obtain the four intervening rates. A later chief actuary, on viewing this process, described it as "like putting a $50 saddle on a $10 horse."

There was an interesting geographical movement of actuaries. Canadian actuaries moved to the United States. When I left National Life in 1959, it had Can$45 million of assets and 13 SOA members employed or on the Board, including the CEO and major shareholder. Canada had twice the number of actuaries per capita than the United States. There was geographic movement within Canada with Laval (Quebec) and Manitoba actuarial graduates moving to Ontario where there were more jobs available with insurers and consultants. U.K. actuaries, especially those from Scotland, migrated to everywhere in the world, particularly to Canada where William Mercer was expanding his benefits firm across the country. Up to that point the purely consulting actuarial firms in Canada were one office, one or two actuary firms.

The United States consulting firms experienced growth spurts at different times. Some got started in the early 1900s mainly to serve state government and teacher plans and small insurers. They had national practices serviced out of one office, for example, Huggins in Philadelphia and Buck in New York. Post World War II, the demand for industrial pensions, both for unionized and nonunion employees, caused many firms to spring up, again in a single city. Demand for local services resulted in these firms opening offices around the country. Accounting firms, investment houses and banks also developed actuarial staff. Many small employers found pension plans to be attractive tax shelters and the demand resulted in formation of boutique firms across the country. The insurance industry met this competition by shifting from individual policy pension trusts and group deferred annuities to more flexible products and service modules.

As plan sponsors expanded to foreign countries, the U.S. consulting firms developed relationships through the International Association of Consulting Actuaries. Foreign actuaries met at biennial IACA meetings, which resulted in referrals. However, as the U.S. firms opened offices or purchased firms worldwide, the referrals became less frequent.

So, this is how I remember it was 50 years ago in a wonderful and rewarding profession. I'm sure other actuaries remember other highlights of their careers and might add to the record.

Conrad M. Siegel, FSA, is chairman and founder of Conrad Siegel Actuaries, Harrisburg, Penn. He can be reached at cmsact@aol.com.